Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
Economic Profit
Hershey Co., economic profit calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,821,868 – 9.16% × 8,759,552 = 1,019,325
The analysis of economic value added from 2018 to 2022 indicates a sustained upward trajectory in economic profit, reflecting a consistent ability to generate returns in excess of the company's cost of capital.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT demonstrated overall growth, increasing from 1,303,042 thousand US dollars in 2018 to 1,821,868 thousand US dollars by 2022. Despite a temporary decrease in 2019, the subsequent years showed an accelerating trend in operational profitability, with the most significant growth occurring between 2021 and 2022.
- Invested Capital and Cost of Capital
- Invested capital grew consistently over the five-year period, rising from 6,545,593 thousand US dollars to 8,759,552 thousand US dollars. The cost of capital remained relatively stable, fluctuating within a narrow range between 8.57% and 9.16%. This suggests a steady expansion of the asset base while the required rate of return remained controlled.
- Economic Profit Trends
- Economic profit grew from 741,772 thousand US dollars in 2018 to 1,019,325 thousand US dollars in 2022. A dip was observed in 2019, which mirrored the decline in NOPAT during that year. However, the recovery and subsequent growth indicate that the increase in operating profit has outpaced the growth in the capital charge, resulting in enhanced shareholder value creation.
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Net Operating Profit after Taxes (NOPAT)
Hershey Co., NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowances for doubtful accounts, anticipated discounts and write-offs of uncollectible accounts receivable.
3 Addition of increase (decrease) in LIFO reserve. See details »
4 Addition of increase (decrease) in equity equivalents to net income attributable to The Hershey Company.
5 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 326,636 × 3.20% = 10,452
6 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 150,547 × 21.00% = 31,615
7 Addition of after taxes interest expense to net income attributable to The Hershey Company.
8 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 2,538 × 21.00% = 533
9 Elimination of after taxes investment income.
Financial performance between 2018 and 2022 is characterized by a consistent upward trajectory in both profitability metrics, despite a marginal contraction during the 2019 fiscal year. A period of sustained growth is evident from 2020 through 2022, reflecting a significant expansion in the company's earning capacity.
- Net Operating Profit After Taxes (NOPAT) Analysis
- NOPAT exhibited a steady increase from US$ 1,303,042 thousand in 2018 to US$ 1,821,868 thousand by 2022. Following a slight dip in 2019, the metric grew by approximately 46.4% between 2019 and 2022, indicating an increase in operational efficiency and core business profitability.
- Net Income Trends
- Net income attributable to the company followed a parallel pattern, decreasing slightly in 2019 to US$ 1,149,692 thousand before ascending to US$ 1,644,817 thousand in 2022. This represents an overall increase of approximately 39.6% over the five-year period.
- Comparative Analysis of NOPAT and Net Income
- A consistent variance is observed where NOPAT exceeds Net Income in every reporting period. This disparity indicates that non-operating items, typically interest expenses associated with debt, are reducing the final net profit relative to the operating performance. The gap remained proportionally stable throughout the period, suggesting a consistent approach to capital structure and financing.
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Cash Operating Taxes
Hershey Co., cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
The analysis of tax-related expenditures between 2018 and 2022 reveals a period of volatility with a distinct peak in 2021. Both the provision for income taxes and cash operating taxes exhibited fluctuations, reflecting the inherent differences between accounting accruals and actual cash outflows.
- Cash Operating Tax Trends
- Cash operating taxes experienced an initial increase from 233.4 million US$ in 2018 to 281.1 million US$ in 2019, followed by a decline to 225.8 million US$ in 2020. A significant spike occurred in 2021, reaching a five-year high of 330.0 million US$, before moderating to 266.4 million US$ in 2022.
- Accrual vs. Cash Variance
- The relationship between the provision for income taxes and cash operating taxes indicates intermittent timing differences. In 2019, cash taxes exceeded the provision by approximately 47 million US$, representing the most significant variance in the period. In contrast, in 2018 and 2022, the provision for income taxes was higher than the actual cash paid, suggesting the creation of deferred tax liabilities or the utilization of tax credits.
- Peak Expenditure Analysis
- The fiscal year 2021 represents the maximum tax burden for both metrics. The provision for income taxes increased by approximately 43% from the 2020 low to reach 314.4 million US$. The simultaneous peak in both the provision and cash operating taxes suggests a substantial increase in taxable profitability or a change in the applicable tax regime during that period.
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Invested Capital
Hershey Co., invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of LIFO reserve. See details »
5 Addition of equity equivalents to total The Hershey Company stockholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
Invested capital exhibited a consistent upward trajectory from 2018 through 2022, growing from 6.55 billion US dollars to 8.76 billion US dollars. This represents a cumulative increase of approximately 33.8% over the five-year period, indicating a sustained expansion of the capital base utilized to generate economic value.
- Growth Pattern of Invested Capital
- The most significant year-over-year expansions occurred between 2019 and 2021, with the capital base increasing from 6.70 billion US dollars to 8.53 billion US dollars. The growth rate moderated slightly in 2022, ending the period at 8.76 billion US dollars.
- Stockholders' Equity Trends
- Total stockholders' equity demonstrated the most aggressive and stable growth of all analyzed components. Equity rose steadily every year, moving from 1.40 billion US dollars in 2018 to 3.30 billion US dollars in 2022. This represents a total increase of approximately 136%, suggesting a strong internal accumulation of capital or significant equity infusions.
- Debt and Lease Obligations
- Total reported debt and leases displayed more volatility compared to equity. While the balance fluctuated between a low of 4.48 billion US dollars in 2019 and a peak of 5.38 billion US dollars in 2021, it ended the period at 5.12 billion US dollars. The relative stability of debt levels compared to the rapid growth of equity indicates a shift in the capital structure.
The analysis indicates that the expansion of invested capital was primarily driven by a substantial increase in stockholders' equity rather than an increase in leverage. By 2022, the proportional contribution of equity to the total invested capital base had grown significantly, suggesting a trend toward a more equity-heavy financing structure for the company's operational assets.
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Cost of Capital
Hershey Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 49,109,414) | 49,109,414) | ÷ | 53,733,350) | = | 0.91 | 0.91 | × | 9.80% | = | 8.95% | ||
| Debt3 | 4,297,300) | 4,297,300) | ÷ | 53,733,350) | = | 0.08 | 0.08 | × | 3.07% × (1 – 21.00%) | = | 0.19% | ||
| Operating lease liability4 | 326,636) | 326,636) | ÷ | 53,733,350) | = | 0.01 | 0.01 | × | 3.20% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 53,733,350) | 1.00 | 9.16% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 41,579,947) | 41,579,947) | ÷ | 47,143,709) | = | 0.88 | 0.88 | × | 9.80% | = | 8.64% | ||
| Debt3 | 5,216,571) | 5,216,571) | ÷ | 47,143,709) | = | 0.11 | 0.11 | × | 2.35% × (1 – 21.00%) | = | 0.21% | ||
| Operating lease liability4 | 347,191) | 347,191) | ÷ | 47,143,709) | = | 0.01 | 0.01 | × | 3.10% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 47,143,709) | 1.00 | 8.86% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 31,342,075) | 31,342,075) | ÷ | 36,557,279) | = | 0.86 | 0.86 | × | 9.80% | = | 8.40% | ||
| Debt3 | 4,996,755) | 4,996,755) | ÷ | 36,557,279) | = | 0.14 | 0.14 | × | 2.95% × (1 – 21.00%) | = | 0.32% | ||
| Operating lease liability4 | 218,449) | 218,449) | ÷ | 36,557,279) | = | 0.01 | 0.01 | × | 3.80% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 36,557,279) | 1.00 | 8.73% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 33,583,010) | 33,583,010) | ÷ | 38,198,067) | = | 0.88 | 0.88 | × | 9.80% | = | 8.61% | ||
| Debt3 | 4,401,685) | 4,401,685) | ÷ | 38,198,067) | = | 0.12 | 0.12 | × | 3.33% × (1 – 21.00%) | = | 0.30% | ||
| Operating lease liability4 | 213,372) | 213,372) | ÷ | 38,198,067) | = | 0.01 | 0.01 | × | 3.80% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 38,198,067) | 1.00 | 8.93% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 22,983,052) | 22,983,052) | ÷ | 27,641,307) | = | 0.83 | 0.83 | × | 9.80% | = | 8.14% | ||
| Debt3 | 4,432,193) | 4,432,193) | ÷ | 27,641,307) | = | 0.16 | 0.16 | × | 3.23% × (1 – 21.00%) | = | 0.41% | ||
| Operating lease liability4 | 226,062) | 226,062) | ÷ | 27,641,307) | = | 0.01 | 0.01 | × | 3.23% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 27,641,307) | 1.00 | 8.57% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Hershey Co., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | 1,019,325) | 844,280) | 775,503) | 644,915) | 741,772) | |
| Invested capital2 | 8,759,552) | 8,529,610) | 7,520,057) | 6,702,394) | 6,545,593) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 11.64% | 9.90% | 10.31% | 9.62% | 11.33% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Coca-Cola Co. | 3.85% | 5.38% | — | — | — | |
| Mondelēz International Inc. | -3.76% | -0.75% | — | — | — | |
| PepsiCo Inc. | 4.37% | 4.92% | — | — | — | |
| Philip Morris International Inc. | 11.92% | 26.25% | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 1,019,325 ÷ 8,759,552 = 11.64%
4 Click competitor name to see calculations.
The financial trajectory between December 31, 2018, and December 31, 2022, reflects a period of capital expansion accompanied by a strengthening of economic value generation. Despite a brief contraction in economic profit in 2019, the subsequent years demonstrate a robust recovery and growth phase, culminating in a peak in both absolute economic profit and the efficiency of the economic spread ratio by the end of the period.
- Economic Profit Trends
- Economic profit experienced a decline from 741,772 thousand US dollars in 2018 to 644,915 thousand US dollars in 2019. This was followed by a three-year period of sustained growth, with values rising to 775,503 thousand US dollars in 2020 and 844,280 thousand US dollars in 2021. By December 31, 2022, economic profit reached its highest point in the observed period at 1,019,325 thousand US dollars, marking a substantial increase over the 2018 baseline.
- Invested Capital Growth
- Invested capital showed a consistent upward trend throughout the five-year window. The capital base expanded from 6,545,593 thousand US dollars in 2018 to 8,759,552 thousand US dollars in 2022. This steady increase indicates a continuous deployment of resources into the business, with the most pronounced annual growth occurring between 2020 and 2021.
- Economic Spread Ratio Analysis
- The economic spread ratio exhibited volatility, beginning at 11.33% in 2018 before dropping to a period low of 9.62% in 2019. While the ratio fluctuated between 10.31% in 2020 and 9.90% in 2021, it ultimately reached a period peak of 11.64% in 2022. This final increase suggests an improved capacity to generate returns in excess of the cost of capital, effectively scaling profitability in alignment with the expanding capital base.
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Economic Profit Margin
Hershey Co., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | 1,019,325) | 844,280) | 775,503) | 644,915) | 741,772) | |
| Net sales | 10,419,294) | 8,971,337) | 8,149,719) | 7,986,252) | 7,791,069) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 9.78% | 9.41% | 9.52% | 8.08% | 9.52% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Coca-Cola Co. | 7.16% | 11.18% | — | — | — | |
| Mondelēz International Inc. | -7.62% | -1.61% | — | — | — | |
| PepsiCo Inc. | 3.51% | 4.32% | — | — | — | |
| Philip Morris International Inc. | 17.77% | 24.37% | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × 1,019,325 ÷ 10,419,294 = 9.78%
3 Click competitor name to see calculations.
The financial trajectory between 2018 and 2022 indicates a strong capacity for value creation, characterized by consistent growth in net sales and a recovery in economic profit. Despite a brief decline in 2019, the organization demonstrated an upward trend in absolute economic profit, culminating in a peak of over 1 billion US dollars by the end of the 2022 fiscal year.
- Economic Profit Trends
- Economic profit experienced a contraction in 2019, falling to 644,915 thousand US dollars from 741,772 thousand US dollars in 2018. However, a sustained recovery followed, with values increasing to 775,503 thousand US dollars in 2020 and 844,280 thousand US dollars in 2021. The most significant expansion occurred in 2022, where economic profit rose to 1,019,325 thousand US dollars, representing a substantial increase in the value generated above the company's cost of capital.
- Net Sales Expansion
- Net sales exhibited a continuous upward trend throughout the five-year period. Starting at 7,791,069 thousand US dollars in 2018, revenue grew steadily to 8,149,719 thousand US dollars by 2020. Growth accelerated in the final two years, reaching 8,971,337 thousand US dollars in 2021 and peaking at 10,419,294 thousand US dollars in 2022, indicating a robust expansion of the market footprint and top-line performance.
- Economic Profit Margin Analysis
- The economic profit margin remained relatively stable, fluctuating within a narrow range. A dip to 8.08% was recorded in 2019, coinciding with the decrease in absolute economic profit. The margin recovered to 9.52% in 2020, remained nearly flat at 9.41% in 2021, and reached a five-year high of 9.78% in 2022. This stability suggests that the company successfully scaled its economic value creation in proportion to its sales growth.
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